Tax Practitioners Question Planned Methods to Curb Malpractice

A wide-ranging Internal Revenue Service (IRS) proposal to strengthen malpractice enforcement has sparked objections from tax practitioners and attorneys.

The agency would publicly list the names of tax attorneys and accountants who are under investigation for alleged violations of IRS professional practice rules, according to Tuesday’s Wall Street Journal. Current rules say the names are kept private until the IRS Office of Professional Responsibility formally investigates and assesses a penalty. Only then are the names and a small amount of additional information made public in the Internal Revenue Bulletin.

Tom Ochsenschlager, vice president of taxation for the American Institute of Certified Public Accountants (AICPA), told the newspaper: “You can imagine what would happen if a particular CPA is being charged with an infraction. Clients probably wouldn't go to him. Professional reputation is all we have to sell."

Public comment ended in June on the proposals, which could go into effect early next year if the Treasury Department approves. The stricter professional rules are meant to crack down on tax professionals who sell bogus tax shelters or who are “incompetent or disreputable.”

The possibility of opening enforcement proceedings to the public has been the most contentious issue, the Journal reported. The IRS believes practitioners could learn from others’ mistakes if the process were opened up, said Stephen Whitlock, acting director of the IRS Office of Professional Responsibility.

The proposal would also limit contingency-fee arrangements—the fees clients pay only if the practitioner wins the IRS dispute. Under the IRS plan, contingency fees would be limited to cases in which taxpayers are formally audited or challenged by the IRS. “Additionally,” the IRS said, “a broader prohibition against contingent fee arrangements is appropriate in light of concerns regarding attorney and auditor independence.” (See Federal Register, February 8, 2006.)

One business that would be affected by the proposal is TAARP Group, a Washington consultancy that reviews IRS-imposed interest and penalties to make sure they are correct. TAARP employees collect a contingency fee if the IRS penalty calculations are indeed wrong. Partner Mark H. Ely told the Journal that the proposed rules "would significantly impair our business."

Dennis Drapkin, head of the American Bar Association tax section, questions whether the IRS is overstepping its authority and interfering with the "attorney-client relationship."